By now, most people are back in the swing of things or preparing for Chinese New Year, the effect of which on the world trade figures should not be underestimated. Let’s progress our discussion on the logistics aspects of procurement with some basic guidelines.

​First, you need to understand the customs, practices and risks in shipping related to exporting and importing countries, as well as the potential routings between countries. For example, I often see South African companies looking to ship to West Africa machinery they have purchased in Europe. As there are next to no shipping services between South Africa and West Africa, it would be easier and cheaper to send the equipment directly from Europe to West Africa. Many people do not realise that Antwerp in Belgium and Durban in South Africa are both almost the same distance from Tema in Ghana!

Once you have established the customs requirements, you need to ensure that your logistics are transparent. A lump sum rate would be easy to use for your calculations, but it may hide myriads of evils. Any logistics operators worth their salt should be able to give you a breakdown of the charges, including what their own cost is. At the same time, you need to accept the value of their work and that there may be extra charges for any ‘surprises’ that come up. I would always recommend that you work on an open book – cost plus basis – where the forwarder charges an agreed fee but also has a ‘special attendance’ hourly rate, which comes into play when required. This is to cover last-minute alterations such as scope changes and customs stops.
​As for a forwarder’s ‘value added’, it is mind-boggling to me that, in many tender processes, there is no request for details of the team at the freight forwarder that will be handling the project. What this says to me is that you, as a cargo owner or procurement officer, see no difference in value between a new graduate and a logistician with 25 years’ hands-on experience of moving cargo around your region or the world. This is a very worrying and dangerous trend. So, whenever tendering for larger movements or projects or for ongoing shipments, ask: ‘Who will make up the team that will be handling and tracking my goods?’ At the least, you know who will be responsible for the movement of your cargo, but if necessary, agree special attendance rates for a more experienced person to back up the team.
And finally for this edition, what are the terms you are buying with? Incoterms, which deserve a whole blog to themselves, are often over-simplified or left out altogether. It is vital that the right Incoterms are agreed and clearly stated on the purchase order and in bank documents. It is just as important to understand exactly what each Incoterm means, not only regarding costs and the timings of payments, but even more importantly when the transfer of ownership and the transfer of risk occur. Next time, we will delve further into this key aspect of international trade.
I look forward to your feedback and any suggestions you might have about what you want me to write about on logistics and materials management.

Hi Lars,
I agree with the article and would like to add that it's amazing that procurement officials/buyers don't take the total landed cost price into consideration when goods are procured. I've also noticed that many of them have no idea that a trade agreement is or with who we have agreements. This in it self could lead to a whole chapter on its own.

Factual and to the point article.

Reply

Lars Greiner

6/2/2017 09:47:24 pm

HI Liza,
Many thanks for that, and you are right, although would comment further that if you are looking at landed cost, you should always then do a cost comparison FOB to CIF.. many suppliers "load" the freight rate to increase their profit margins.
DO not worry, am planning a "shortish" article in the near future on trade agreements. I say shortish, because you could write a whole series just on them.. actually even just on the Vienna sales convention and the case law from that.
thank you.